Venture: Update

Issue 128;

I bought the KOSPI, the Korean market Index, for the first time back in 2005. It peaked around the same time as Japan and Taiwan in the late 1980s, only to go sideways for the next 15 years. I will show the three markets since 1980.

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Taiwan didn’t make a new high until after the pandemic, which was a 30-year wait. The market crashed in 1990, falling by 80% in just eight months.

Taiwan Stock Exchange since 1980

Source: Bloomberg

Japan had to wait even longer to make a new high, and didn’t break out until 2025, which was a 35-year wait.

The Japanese TOPIX since 1980

Source: Bloomberg

The KOSPI was the first to break out in 2005, a 15-year wait, which was 20 years ahead of Japan and 15 years ahead of Taiwan. In 2005, the appeal wasn’t electronics, but industry. POSCO had become the world’s most efficient steel producer and symbolised the country’s broad industrial progress.

The Korean KOSPI since 1980

Source: Bloomberg

The currencies are different stories. The Taiwan Dollar has been stable other than a minor devaluation in the late 1990s, during the Asian Financial Crisis. The Japanese Yen was one of the world’s strongest currencies until 2012, when it started to devalue. The Korean Won stands as the weakest, down 55% against the dollar over the period. The savage Won correction of 60% during the Asian Crisis helps to explain why the KOSPI was the first to recover.

Korean Won, Japanese Yen, Taiwan Dollar vs US Dollar since 1990

Source: Bloomberg

The KOSPI in US dollars is a curious chart. So much money was made in Korean stocks (10x) in the late 1980s. The index doubled in 2005 but stalled by 2007. The market traded within a range for another 20 years before the recent breakout. The 1980-to-present gain is 30x in USD (half the S&P 500 in capital terms), with much of that performance coming recently.

The Korean KOSPI since 1980 – in USD

Source: Bloomberg

The curious thing about the latest rally is how the market has been so strong despite having such weak breadth. Just 25% of stocks are trading above their 200-day moving averages, a trend that has been deteriorating since late April. It is a clear sign that this won’t last much longer.

The Korean KOSPI – Past Year

Source: Bloomberg

Last Friday saw a sharp correction in global semiconductor stocks, and we await the forthcoming IPO spree. To us, it doesn’t seem that the good times can last for much longer.

This week, we are reducing some risk.

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